Pandemic Has Turned DIY- Ubiquitous, Reliance Share Price Moves in Sync with Reece

Summary

  • First quarter sales update and Investor Day interaction with the Board and Management pushed Reliance Worldwide Corporation share price higher. Similar but larger business, Reece Limited was also up on Friday near to its 52-week high.
  • Reliance highlighted that sales were driven by DIY push in the US and recovering demand in the UK and Europe albeit slower dwelling approvals in Australia.

Demand for consumer durables and stay at home essentials has been strong over the year, and the trend has been similar across regions. Many strong companies have capitalised in this environment and have delivered decent results over the past few months.

Sales were strong at players like Bunnings, JB Hi-Fi and Adairs. Homeowners have preferred renovation while continuing to trade real assets. At the peak of lockdowns, demand for most products and services was hurt forcibly and had been coming back.

According to ABS, dwelling approvals for the month of August fell 1.6% over the previous month on seasonally adjusted terms. Based on type, private sector house dwelling approvals were up 4.8% sequentially and 12.4% over the year.

Excluding houses, private sector dwelling approvals were down 11% sequentially and 18.4% over the year. Western Australia led the dwelling approvals with 33.8% change over the previous month.

Dwellings approval in New South Wales was down 14.2%, Tasmania was down 26.2% and South Australia was down 4.8%, while in Queensland, it was up 8.1% and in Victoria, it was up 1.8%.

Good Read: Westpac Forecasts 15% Spike in House Prices- Real Estate Weathering The COVID-19 Storm?

RWC Share Price Up Over 10%

Reliance Worldwide Corporation Limited (ASX:RWC) has continued the momentum seen during the previous financial year. At its Investor Day on 1 October 2020, the company reported sales performance until 25 September 2020.

It was noted that sales in each region continued to track consistent with expectation reported at the time of FY20 full-year results. Below is the summary of sales performance across regions between July and September.

Americas

Sales in the region continued strong momentum in September, driven by improved sales in wholesale channels with continued recovery in the Canadian market. The retail and hardware point of sales in the US during September has been similar to the trend witnessed in July and August.

The higher sales growth in September was primarily attributed to carryover orders from August. Management does not expect that elevated demand would continue throughout FY2021, especially when COVID-19 Government stimulus measures are scaled back.

Asia-Pacific

External sales in the region were up slightly in September, and intercompany sales volumes were also higher. In Australia, lower housing approvals and dwelling commencements continue to remain risks to sales growth for the year.

EMEA

As markets have been majorly reopened, the segment continued to experience volumes recovery in the UK and continental Europe. Post the COVID-19 lockdown, improved sales activity has been the result of pent up demand, and channel partners have been building up inventory, which depleted during lockdowns.

Also, the comparisons with a prior period showed that August is seasonally the lowest sales month of the year, as a result of European summer vacations, which was disrupted this year because of COVID-19. Across regions, September sales also reflect one additional trading day compared to the same period last year.

Group CEO, Heath Sharp told that first-quarter sales were strong, but the Company remains cautious as the momentum was largely due to DIY push across markets and recovery in construction activity. He also acknowledged the increasing number of coronavirus cases.

On 1 October 2020, RWC ended at $4.22, up by 10.471% from the previous close.

Related: 3 ASX 200 listed Best Performers in August– IDP Education, Reliance Worldwide, WiseTech

REH Share Price Up ~3%

In FY20 ended 30 June, Reece Limited (ASX:REH) posted record sales of $6.01 billion, up 10% with normalised EBITDA up 3% to $537 million. MORSCO’s sales revenue was up 20% to $3.12 billion, up by 7% on constant currency terms, while sales revenue for Reece was up by 1% to $2.88 billion in ANZ.

Management took the necessary steps to protect the business, albeit strengthening strategy for the long term. This was done by protective measures for community, employees and stakeholders while increasing digital offerings.

In May this year, the company finalised a $647 million equity raise and further strengthened balance sheet to pursue long-term strategy. It also announced key leadership changes to support increased emphasis on business regionally.

Reece has announced 6 cents per share dividend, taking the full-year dividend to 12 cents per share. The final dividend has a record date on 7 October and is payable on 28 October 2020.

Cash flow from operations was $601 million compared to $255 million in the previous year. Capital expenditure was $83 million compared to $99 million in FY19. Senior debt at the end of the year stood $1.76 billion, cash balance was $1 billion, and net debt to normalised EBITDA was 1.4x.

On 1 October 2020, REH ended at $13.32, up by 2.8% from the previous close.


 


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